B-238548, Feb 5, 1991, 70 Comp.Gen. 230

B-238548: Feb 5, 1991

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APPROPRIATIONS/FINANCIAL MANAGEMENT - Appropriation Availability - Time availability - Fiscal-year appropriation - Replacement contracts When a contracting officer terminates a contract for the convenience of the government as a result of his or her determination that the award was clearly erroneous. Provided the conditions specified in 68 Comp.Gen. 158 are satisfied and the contracting officer's determination of improper award is supported by findings of fact and law. 68 Comp.Gen. 158. Asks whether funds originally obligated for a contract in fiscal year 1989 are available for a replacement contract in a subsequent fiscal year where the Navy has determined as a result of a protest that the original contract was awarded improperly and proposes to terminate the original contract for convenience.

B-238548, Feb 5, 1991, 70 Comp.Gen. 230

APPROPRIATIONS/FINANCIAL MANAGEMENT - Appropriation Availability - Time availability - Fiscal-year appropriation - Replacement contracts When a contracting officer terminates a contract for the convenience of the government as a result of his or her determination that the award was clearly erroneous, the funds originally obligated for that contract remain available for a replacement contract awarded in a subsequent fiscal year, provided the conditions specified in 68 Comp.Gen. 158 are satisfied and the contracting officer's determination of improper award is supported by findings of fact and law. 68 Comp.Gen. 158, clarified.

Navy, Replacement Contract:

The Department of the Navy, Office of General Counsel, asks whether funds originally obligated for a contract in fiscal year 1989 are available for a replacement contract in a subsequent fiscal year where the Navy has determined as a result of a protest that the original contract was awarded improperly and proposes to terminate the original contract for convenience. We find that the prior year funds may be used accordingly.

BACKGROUND

The Naval Supply Center, Norfolk, Virginia, issued solicitation N00189-89 -R-0403 on July 13, 1989 to procure ten netless sea cushions. The solicitation requested proposals on both an "F.o.b. - Origin," and "F.o.b. - Destination" basis. The Navy received proposals on August 14, 1989 and determined that the "F.o.b. - Origin" offer submitted by InterTrade Industries, Ltd., was low after the addition of applicable shipping costs. The Navy awarded contract N00189-89-C-0489 to InterTrade on September 13, 1989.

On October 4, 1989, Seaward International Corporation protested the award, claiming the freight charges added to InterTrade's "F.o.b. - Origin" proposal were erroneous and that the award should have gone to Seaward as the low offeror. The contracting officer reviewed the calculation of shipping costs added to InterTrade's "F.o.b. - Origin" price and determined that Seaward was in fact correct. The Navy had underestimated the shipping costs applicable to InterTrade's "F.o.b. - Origin" price and had erroneously awarded the contract to InterTrade when the award should have been made to Seaward.

ISSUE

The Navy asks whether the funds originally obligated in fiscal year 1989 for the InterTrade contract would be available in a subsequent fiscal year to fund the replacement Seaward contract. The Navy is concerned that these funds would be unavailable in light of our decision in 68 Comp.Gen. 158 (1988), in which we indicated that prior fiscal year funds are available to fund a replacement contract when a termination for convenience was in response to a court order or a determination by competent administrative authority. The Navy wishes "to award a replacement contract to correct an erroneous contract award without the requirement of a court order or determination from the General Accounting Office." Authority to do this, the Navy argues "would encourage resolution of clearly improper awards at the agency level without the need for judicial or General Accounting Office involvement."

ANALYSIS

In 68 Comp.Gen. 158 (1988), we held that funds originally obligated in one fiscal year remain available in a subsequent fiscal year to fund a replacement contract if the original contract is terminated for convenience in response to a court order, or a determination by the General Accounting Office or other competent authority, that the contract award was improper. We reasoned that in such situations the agency had no choice but to terminate the contract just as if there had been a default by the contractor. In the case of a defaulted contract, we had previously held that the funds supporting the defaulted contract remain available to fund a replacement contract. 60 Comp.Gen. 591, 592-93 (1981).

The fact that, as here, the defect is discovered by the contracting officer, rather than an external reviewing body, should make no difference with respect to whether the funds supporting the erroneously awarded contract remain available for a replacement contract. In either event, the reason for remedial action is the same -- a defect in the procurement award. The contracting officer by virtue of his or her position and role in the procurement process has little alternative but to cancel the award or terminate the contract to maintain the integrity of the procurement process. In this regard, contracting officers are entrusted both with the authority to enter into and to administer contracts as well as with the responsibility to ensure that contract awards are made in accordance with all applicable laws and regulations. Thus, the integrity of the procurement process requires that contracting officers be regarded as "competent authorities" within the framework of our replacement contract rule.

Our holding is limited to situations where, as here, there is explicit evidence that the award was erroneous, and where the agency documents its determinations concerning the impropriety of the original award with the appropriate findings of fact and law. Such cases will typically involve circumstances that permit the contracting officer to predict with a high degree of confidence that if the matter were before a court or administrative body, the obvious result would be an order to terminate for convenience.

In the present case, the Navy has determined that it improperly awarded the contract in violation of applicable statutes and regulations. The award was erroneous because the Navy had underestimated the applicable shipping costs and thus had not awarded the contract to the low offeror. Accordingly, the proper action for the Navy to take would be to terminate the contract, and, for the reasons discussed above and in our earlier decision, 68 Comp.Gen. 158, the Navy should not be precluded from awarding a replacement contract using the previously obligated funds.

As we have already set forth in 68 Comp.Gen. at 162, with our expansion of the replacement contract rule come several restrictions with which agencies must abide. After determining that a contract was improperly awarded an agency wishing to terminate the contract and use the funds for a replacement contract must meet the following conditions: (1) the original contract was made in good faith, (2) the agency has a continuing bona fide need for the goods or services involved, (3) the replacement contract is of the same size and scope as the original contract, and (4) the replacement contract is executed without undue delay after the original contract is terminated for convenience. Once these requirements have been met, the agency may obligate prior fiscal year funds for the replacement contract.

We would not object to the Navy's use of funds, originally obligated in fiscal year 1989 for the InterTrade contract, to pay for a replacement contract in a subsequent fiscal year, provided the stated conditions are satisfied. 68 Comp.Gen. 158 is clarified in accordance with this decision.